Section 194A of the Income Tax Act specifies the conditions and rates for deducting tax at source (TDS) on interest payments. This section applies to interest earned on investment options outside securities, such as fixed deposits and loans. A clear understanding of Section 194A can help taxpayers leverage potential exemptions and avoid tax liabilities. Here’s an in-depth look at the applicability, TDS rates, threshold limits, exemptions, and other key details surrounding Section 194A.
Section 194A of the Income Tax Act requires TDS to be deducted on interest income from sources other than securities, which means it applies to various interest payments, such as on bank deposits and loans. The TDS deduction rate is 10% when the taxpayer’s PAN (Permanent Account Number) is provided; otherwise, it is increased to 20%.
The payments covered under this section generally include:
Note: Interest payments made by a partnership firm to its partners are excluded and thus do not attract TDS under this section.
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Here are the main provisions related to Section 194A:
The TDS rate and applicable threshold limit under Section 194A depend on whether the PAN is provided and the type of financial institution involved. Here’s a summary of these details:
| Institution Type | TDS Rate with PAN | Threshold | TDS Rate without PAN |
| Banks and financial institutions | 10% | Rs. 10,000 | 20% |
| Others (e.g., non-banking institutions) | 10% | Rs. 5,000 | 20% |
Note: Due to COVID-19 relief measures, the TDS rate was temporarily reduced to 7.5% until March 31, 2021.
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TDS under Section 194A is required in the following situations:
Entities are responsible for deducting TDS even if the interest is yet to be credited to the payee’s account.
The deposit timeline for TDS is crucial for taxpayers to ensure compliance:
For example, if a bank credits interest of Rs. 15,000 on a fixed deposit, TDS must be deducted at 10% (if the PAN is provided), as the amount exceeds Rs. 10,000. The deducted TDS must be deposited within the timelines specified.
Certain interest payments are exempt from TDS under Section 194A:
Here’s a summary of TDS exemption limits:
| Type of Depositor | Bank Interest Exemption | Other Interest Exemption |
| Senior Citizens | Rs. 50,000 | Rs. 50,000 |
| Other Individuals | Rs. 40,000 | Rs. 40,000 |
Form 15G and 15H: Individuals eligible for exemptions can submit Form 15G (for individuals) or Form 15H (for senior citizens) to prevent TDS deduction on their interest income.
Section 194A allows for TDS to be deducted at a lower rate or not at all in certain situations:
Declaration in Form 15G or 15H: As per Section 197A, individuals who fulfill specific criteria can file Form 15G or Form 15H to avoid TDS. These forms are applicable only when:
Form 13 for a Lower TDS Certificate: Individuals can submit Form 13 to their assessing officer, applying for a certificate authorizing a lower TDS rate. This option is not available for individuals who do not possess a PAN.
Section 194 A serves as an essential tax tool, ensuring TDS on interest income from various financial instruments. Familiarity with its rates, exemptions, and limits can help individuals and entities alike in managing tax obligations effectively. Taxpayers can further reduce or avoid TDS deductions on interest earnings by filing appropriate declarations and meeting exemption criteria.
If PAN details are not provided, TDS is deducted at 20%.
No, Section 194A does not apply to interest on savings accounts.
Cooperative societies are generally exempt from TDS on interest payments made to their members.
No, Section 194A is applicable only to resident individuals. TDS for NRIs is governed by Section 195.
Individuals can submit Form 15G or Form 15H (for senior citizens) if they meet specific conditions. Form 13 can also be filed to request a lower or nil TDS rate.
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